Econ Final

(figure aggregated demand and fiscal policy) In the best-case scenario, an economy in a recession at point would use fiscal policy to increase spending growth to:

10%

In 1970, 1.3 barrels of oil were used to produce $1,000 of GDP. In 2004, it took only 0.64 barrels of oil to do the same. What implications does this have for economic fluctuations in the US today?

Spikes in oil prices will not have as severe an impact on the US economy today as they did in the 1970s

As market interest rates rise:

a banks opportunity cost of holding reserves rises

Deflation is:

a decrease in the average level of prices

During a recession, consumers hold more money b cutting back on their spending, resulting in _____ in inflation and _____ in real growth.

a decrease; a decrease

Which of the following would result from positive productivity shock?

an increase in the economy's long run potential growth rate

The FICA tax burden is:

borne more by the employee even though the employer contributes an equal dollar amount

if the federal Reserve offsets a negative shock to aggregated demand with increased money growth:

both inflation and rea GDP growth will rise compared to if the Fed had not acted

government spending is more effective policy tool when:

consumers are pessimistic and not spending

Which of the following will NOT shock aggregated demands so that it shifts to the left?

decreased import growth

which policy would the fed board of governors choose following a negative real shock if they are more concerned about inflation than unemployment?

decreases the money supply to shift the aggregated demand curve to the left

(Includes Chart of Long Run Aggregated Supply Curves) which of the following can explain the shift of the long run aggregated supply curve from A to B in the figure?

development of new technology

Much to the chagrin of some Americans, conventional light bulbs were effectively banned in 2014..... Which concept is the best captured in this story?

diffused costs and concentrated benefits

The labor force consists of:

employed workers and adults who do not have jobs but who are looking for work

the labor force consists of:

employed workers and adults who do not have jobs but who are looking for work

Suppose the economy is growing faster than its long run potential growth rate. To hiring the real growth rate back to the long run potential rate, the Fed should:

engage in actions to raise interest rates

when workers lose their jobs and become officially unemployed, the number of people in labor force:

remains constant

Someone who recently moved to florida because of its warmer climate will need to spend some time looking for a new job. This is a example of:

underemployment

Workers bear at least a majority, if not all, of the burden of the employers' share of FICA and Medicare tax payments because the:

workers would have earned higher wages without the tax payments

If the Fed credits Alex's checking account with $8,000 and Alex's bank decides to keep the entire $8,000 in the form of reserves instead of lending it out, how much does the money supply increase?

$8,000

When consumers suddenly become more pessimistic about the economy, a negative aggregated demand shock shifts the:

AD curve to the left, reducing the real growth rate in the short run

Which of the following would be considered unemployment?

Janice, who graduated from the university in My, is waiting for her new job to start in July

When the Fed uses the tools of monetary policy, what economic impact is it seeking to accomplish?

a shift of the long run aggregated supply curve

A negative real shock leads to:

an increase in the inflation rate but a decrease in the real GDP growth rate

Which of the following would not shift the long run aggregated supply curve?

an increase in the money supply

During the internet revolution in the late 1990s, a positive real shock shifted the long run aggregated supply curve to the right, which led to:

an increase in the real growth rate and a decrease in the inflation rate

if prices are perfectly flexible, the economy will always be growing:

at its potential rate

An increase in the reserve ratio means that banks want to:

become more liquid

To increase the money supply in the economy, the Fed would:

carry out open market purchases and/or decrease the interest rate paid on reserves

when the fed buys US government bonds to affect the money supply, it is:

conducting an open market purchase

In the Distinguished Gentleman..... How does Murphy's character use voter ignorance to win the election?

he's expecting most voters to neither investigate him too much nor know that their congressman died

A problem that makes fiscal policy less effective is that:

higher taxes or increased borrowing to fund government spending can reduce aggregated demand

You are a policymaker and a lobbyist comes to you, arguing that his industry is important for national security and has important spillover benefits. Why might you be suspicious of his claims?

his industry benefits from tariffs that decrease foreign competition

In the basic model with AD and LRAS curves only, if spending growth is 10% and the Solow growth rate falls from 5% to 3%, then inflation will:

increase from 5% to 7%

(figure aggregated demand shifts) Suppose the economy is initially at point A in the diagram. If an increase in investment spending causes a shift of the AD curve from AD1 to AD4, then the government can avoid a short run increase in inflation by:

increasing taxes so that the AD curve shifts back to AD1

when the fed supplies "too much" monetary stimulus in the face of a negative aggregated demand shock:

inflation, real growth and nominal wage growth all increases

Disinflation is more painful when he central bank:

is not credible

If a baker observes an increase in demand for bread, should the baker increase output or raise prices?

it depends on whether the change in demand is driven by inflation or by a stronger preference for bread

suppose that congress decided to exempt seniors from paying income tax on labor income. What would happen to the labor force participation rate for seniors?

it would increase

which of the following is considered unemployed?

john, on temporary layoff from his work, awaits recall

laws that make it more difficult (and more expensive) to fire workers:

lead to higher rates of long term unemployment

In early 2018, President Trump imposed new tariffs on washing machines produced outside the United States because:

low- to medium- skilled jobs were under pressure from the international production of goods and from the automation of factories

the most important tax rate for determining an individuals incentive to work is the ______ tax rate.

marginal

Money illusion is:

mistaking changes in nominal prices for changes in real prices

Two problems with the average price level indicated by the CPI are changes in both the _____ and the ______.

mix of goods purchased; quality of goods purchased

When actual inflation is equal to expected inflation:

neither borrowers nor lenders are harmed

if the economy is hit by a negative real shock that reduces real GDP growth below its long run potential rate, what is the appropriate monetary policy to move real GDP growth back to the long run rate without raising inflation?

no monetary policy can achieve this goal

An unexpected increase in export growth is a:

positive AD shock

Given the possibilities for crowding out, expansionary fiscal policy financed through government borrowing is MOST likely to be effective when the:

private sector is reluctant to spend or invest

why is wasteful spending by the government difficult to control?

providing decisions makers with necessary information and creating incentives to control costs are both difficult to acheive

Minimum wage laws and unions tend to:

raise wages and raise unemployment

As a result of an increase in the growth rate of the money supply:

real GDP growth increases only in the short run, and the inflation rate increases in both the short run and the long run

Which of the following is NOT consistent with points along the long run aggregated supply curve?

real output growth is negatively related to inflation

Representative John Murph has secured around $200 million of federal government money for a small airport near June burg PA, that averages about 30 passengers a day. The costs of this government support:

represents an external cost paid mostly b taxpayers who will never use the airport

Inflation is painful to stop because stopping it:

requires decreasing the growth rate of the money supply, which typically leads to lower growth overall in the short run

Disinflation occurs when the overall price level:

rises at a decreasing rate

After a pair of wars in the late seventeenth and earl 18th centuries, french-british relations decayed to the point that England began putting high tariffs on French wines.... Of the arguments agains5t free trade, which seems most likely to apply here, given the information provided?

saving domestic jobs

Fiscal policy is MOST effective in keeping both inflation and real growth stable when there is a:

shock to aggregated demand

Tyler owes $100,000 but he owns Mexican Amati paintings that he could sell immediately for $80,000 or within a few months for $120,000. if these are all the assets and liabilities that Tyler has, tyler is:

solvent but illiquid

A worker repairing VHS cassette tape players was laid off because most of his customers have started using DVD players and streaming services. This worker is now:

structurally unemployed

The federal Reserve can influence the economy by shifting:

the AD curve

Figure (monetary policy) Assume that the economy is initially at point Y in the graph. if the Fed took the appropriate action with monetary policy but banks were slow to lend, then:

the Fed action would be partially effective and the economy would move to point Z

(figure monetary policy) Assume that the economy is initially at point Y in the graph. If the Fed took the appropriate action with monetary policy but overestimated how serious the recession is, then:

the Fed would overshoot and the economy would move to point W

As part of the American Recovery and reinvestment Act, $7 million was earmarked to build a bridge over a railroad crossing so that 168 Nebraska town resident wouldn't have to wait for the trains to pass. Which of the following best explains why this proposal was passed?

the costs were highly diffused, while the benefits were very concentrated

Two reasons that there was considerable waste in US government spending in Iraq and Afghanistan were that:

the desires of Iraq and Afghan people were not clearly known to decision makers in the United States and American taxpayers could not easily monitor the US spending in Iraq and Afghanistan

If the Fed buys government bonds, which will likely NOT increase?

the federal funds rate

In the figure, assume that the initial real growth rate of the economy is 3% when a negative aggregated demand shock shifts the AD curve from AD1 to AD2. As a result of the feds policy response, the D curve shifts to AD5 in the short run. Which of the following is TRUE about the feds policy response?

the feds responded too much to the shock

why are voters generally considered myopic?

the focus on economic conditions in the ear of the election, not over the entire term of the presidency

Inflation tends to benefit:

the government

the Text states that "inflation is a type of tax." This tax refers to ____ when inflation occurs.

the lower purchasing power of money

suppose the federal government incurred a $1 billion deficit in 2011. What was true of the national debt?

the national debt increased by $1 billion

without trade restrictions, the price of tennis shoes is $30 and with trade restrictions the price of tennis shoes is $45. The difference in the two prices reflects:

the value of the extra resources for domestic production of additional pair of tennis shoes

The "quantity theory of money" describes the relationship between:

the velocity of money, money supply, real output and prices